Global risks are rising - as a result of the debt boom, artificial intelligence and fragility
Global pressures from rising public debt to financial fragility and the sustainability of the artificial intelligence boom are increasing risks, underscoring the need for disciplined policymaking, according to the Bank for International Settlements.
The umbrella group of central banks' Annual Economic Report, published on Sunday, warned of a complex mix of vulnerabilities, including strained fiscal positions, ongoing supply shocks and the risk of a renewed period of high inflation.
While economic activity has remained stable in recent months, policymakers need to act decisively, the BIS said, to preserve stability.
The report highlighted four main pressure points. Inflation has risen again, with the BIS warning that more frequent supply disruptions could cause higher inflation expectations to take root among households and businesses.
He said the recent ceasefire between the United States and Iran in the Middle East and the reopening of the Strait of Hormuz were "good news" that meant extreme scenarios would be avoided, although it may take time for the oil market to "normalize."
The BIS also signaled uncertainty about the sustainability of the current surge in AI-related investment. While AI has boosted confidence and supported growth through expectations of increased productivity, the bank warned that it was raising fears about jobs and that supply constraints and intense competition could lead to the kind of overinvestment seen in previous boom and bust cycles.
At the same time, public debt at record levels and sovereign debt markets, increasingly dominated by large, highly leveraged hedge funds, had created "a new nexus between sovereign and financial stability," which poses growing risks.
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